This section of the FEDERAL REGISTER
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
Rules and Regulations Federal Register
25975
Vol. 84, No. 108
Wednesday, June 5, 2019
1 79 FR 61440 (Oct. 10, 2014), codified at 12 CFR
part 50 (OCC), 12 CFR part 249 (Board), and 12 CFR
part 329 (FDIC).
2 Id.
3 See section 1 of the LCR rule. On December 21,
2018, the agencies invited comment on a proposed
rule that would revise the framework for
determining the applicability of the standardized
liquidity requirements, including the LCR rule, for
U.S. banking organizations. See Proposed Changes
to Applicability Thresholds for Regulatory Capital
and Liquidity Requirements, 83 FR 66024 (Dec. 21,
2018). On May 24, 2019, the agencies published for
comment a proposed rule to apply standardized
liquidity requirements to foreign banking
organizations with respect to their combined U.S.
operations. See Proposed Changes to Applicability
Thresholds for Regulatory Capital Requirements for
Certain U.S. Subsidiaries of Foreign Banking
Organizations and Application of Liquidity
Requirements for Foreign Banking Organizations,
Certain U.S. Depository Institution Holding
Companies, and Certain Depository Institution
Subsidiaries, 84 FR 24296 (May 24, 2019). These
proposed rulemakings, if adopted, would revise the
scope of application of the LCR rule.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 50
[Docket ID OCC–2018–0013]
RIN 1557–AE36
FEDERAL RESERVE SYSTEM
12 CFR Part 249
[Docket No. R–1616]
RIN 7100–AF10
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 329
RIN 3064–AE77
Liquidity Coverage Ratio Rule:
Treatment of Certain Municipal
Obligations as High-Quality Liquid
Assets
AGENCY: Office of the Comptroller of the
Currency (OCC), Treasury; Board of
Governors of the Federal Reserve
System (Board); and Federal Deposit
Insurance Corporation (FDIC).
ACTION: Final rule.
SUMMARY: The OCC, the Board, and the
FDIC (collectively, the agencies) are
jointly adopting as a final rule, without
change, the August 31, 2018, interim
final rule, which amended the agencies’
liquidity coverage ratio (LCR) rule to
treat liquid and readily-marketable,
investment grade municipal obligations
as high-quality liquid assets. This
treatment was mandated by section 403
of the Economic Growth, Regulatory
Relief, and Consumer Protection Act.
DATES: The final rule is effective on July
5, 2019.
FOR FURTHER INFORMATION CONTACT:
OCC: Christopher McBride, Director,
James Weinberger, Technical Expert, or
Ang Middleton, Bank Examiner (Risk
Specialist), (202) 649–6360, Treasury &
Market Risk Policy; David Stankiewicz,
Special Counsel, Lee Walzer, Counsel,
Henry Barkhausen, Counsel, or Daniel
Perez, Senior Attorney, (202) 649–5490,
Chief Counsel’s Office; or for persons
who are deaf or hearing-impaired, TTY,
(202) 649–5597, Office of the
Comptroller of the Currency, 400 7th
Street SW, Washington, DC 20219.
Board: Constance Horsley, Deputy
Associate Director, (202) 452–5239,
Peter Clifford, Manager, (202) 785–6057,
J. Kevin Littler, Lead Financial
Institution Policy Analyst, (202) 475–
6677, or Christopher Powell, Senior
Financial Institution Policy Analyst,
(202) 452–3442, Division of Banking
Supervision and Regulation; Laurie
Schaffer, Associate General Counsel,
(202) 452–2272, Benjamin W.
McDonough, Assistant General Counsel,
(202) 452–2036, Steve Bowne, Counsel,
(202) 452–3900, Laura Bain, Senior
Attorney, (202) 736–5546, or Jeffery
Zhang, Attorney, (202) 736–1968, Legal
Division, Board of Governors of the
Federal Reserve System, 20th and C
Streets NW, Washington, DC 20551. For
the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (202) 263–4869, Board of
Governors of the Federal Reserve
System, 20th Street and Constitution
Avenue NW, Washington, DC 20551.
FDIC: Bobby R. Bean, Associate
Director, (202) 898–6705, Michael E.
Spencer, Chief, (202) 898–7041, Eric W.
Schatten, Senior Policy Analyst, (202)
898–7063, Andrew D. Carayiannis,
Senior Policy Analyst, (202) 898–6692,
CapitalMarkets@FDIC.gov, Capital
Markets Branch, Division of Risk
Management Supervision; Suzanne J.
Dawley, Counsel, (202) 898–6509,
Gregory S. Feder, Counsel, (202) 898–
8724, or Andrew B. Williams, II,
Counsel, (202) 898–3591, Supervision
and Corporate Operations Branch, Legal
Division, Federal Deposit Insurance
Corporation, 550 17th Street NW,
Washington, DC 20429. For the hearing
impaired only, Telecommunication
Device for the Deaf (TDD), (800) 925–
4618.
SUPPLEMENTARY INFORMATION:
I. Background
The Office of the Comptroller of the
Currency (OCC), the Board of Governors
of the Federal Reserve System (Board),
and the Federal Deposit Insurance
Corporation (FDIC) (collectively, the
agencies) adopted the liquidity coverage
ratio (LCR) rule 1 in 2014. The LCR rule
established a quantitative liquidity
requirement that is designed to promote
the short-term resilience of the liquidity
risk profile of large and internationally
active banking organizations. The intent
of the agencies in issuing the LCR rule
was to improve the U.S. banking sector’s
ability to absorb shocks arising from
financial and economic stress and the
measurement and management of
liquidity risk.2 The LCR rule generally
applies to a bank holding company,
savings and loan holding company, or
depository institution if: (1) It has total
consolidated assets equal to $250 billion
or more; (2) it has total consolidated on-
balance sheet foreign exposure equal to
$10 billion or more; or (3) it is a
depository institution with total
consolidated assets equal to $10 billion
or more and is a consolidated subsidiary
of a firm that is subject to the LCR rule
(each, a covered company).3 Covered
companies generally must maintain an
amount of high-quality liquid assets
(HQLA) equal to or greater than their
projected total net cash outflows over a
prospective 30 calendar-day period. The
LCR rule defines three categories of
HQLA—level 1, level 2A, and level 2B
liquid assets—and sets forth qualifying
criteria for HQLA and limitations for an
asset’s inclusion in a banking
organization’s HQLA amount.
In 2016, the Board amended its LCR
rule to include certain U.S. municipal
securities as HQLA, subject to certain
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jbell on DSK3GLQ082PROD with RULES
contains regulatory documents having general
applicability and legal effect, most of which
are keyed to and codified in the Code of
Federal Regulations, which is published under
50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by
the Superintendent of Documents.
Rules and Regulations Federal Register
25975
Vol. 84, No. 108
Wednesday, June 5, 2019
1 79 FR 61440 (Oct. 10, 2014), codified at 12 CFR
part 50 (OCC), 12 CFR part 249 (Board), and 12 CFR
part 329 (FDIC).
2 Id.
3 See section 1 of the LCR rule. On December 21,
2018, the agencies invited comment on a proposed
rule that would revise the framework for
determining the applicability of the standardized
liquidity requirements, including the LCR rule, for
U.S. banking organizations. See Proposed Changes
to Applicability Thresholds for Regulatory Capital
and Liquidity Requirements, 83 FR 66024 (Dec. 21,
2018). On May 24, 2019, the agencies published for
comment a proposed rule to apply standardized
liquidity requirements to foreign banking
organizations with respect to their combined U.S.
operations. See Proposed Changes to Applicability
Thresholds for Regulatory Capital Requirements for
Certain U.S. Subsidiaries of Foreign Banking
Organizations and Application of Liquidity
Requirements for Foreign Banking Organizations,
Certain U.S. Depository Institution Holding
Companies, and Certain Depository Institution
Subsidiaries, 84 FR 24296 (May 24, 2019). These
proposed rulemakings, if adopted, would revise the
scope of application of the LCR rule.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 50
[Docket ID OCC–2018–0013]
RIN 1557–AE36
FEDERAL RESERVE SYSTEM
12 CFR Part 249
[Docket No. R–1616]
RIN 7100–AF10
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 329
RIN 3064–AE77
Liquidity Coverage Ratio Rule:
Treatment of Certain Municipal
Obligations as High-Quality Liquid
Assets
AGENCY: Office of the Comptroller of the
Currency (OCC), Treasury; Board of
Governors of the Federal Reserve
System (Board); and Federal Deposit
Insurance Corporation (FDIC).
ACTION: Final rule.
SUMMARY: The OCC, the Board, and the
FDIC (collectively, the agencies) are
jointly adopting as a final rule, without
change, the August 31, 2018, interim
final rule, which amended the agencies’
liquidity coverage ratio (LCR) rule to
treat liquid and readily-marketable,
investment grade municipal obligations
as high-quality liquid assets. This
treatment was mandated by section 403
of the Economic Growth, Regulatory
Relief, and Consumer Protection Act.
DATES: The final rule is effective on July
5, 2019.
FOR FURTHER INFORMATION CONTACT:
OCC: Christopher McBride, Director,
James Weinberger, Technical Expert, or
Ang Middleton, Bank Examiner (Risk
Specialist), (202) 649–6360, Treasury &
Market Risk Policy; David Stankiewicz,
Special Counsel, Lee Walzer, Counsel,
Henry Barkhausen, Counsel, or Daniel
Perez, Senior Attorney, (202) 649–5490,
Chief Counsel’s Office; or for persons
who are deaf or hearing-impaired, TTY,
(202) 649–5597, Office of the
Comptroller of the Currency, 400 7th
Street SW, Washington, DC 20219.
Board: Constance Horsley, Deputy
Associate Director, (202) 452–5239,
Peter Clifford, Manager, (202) 785–6057,
J. Kevin Littler, Lead Financial
Institution Policy Analyst, (202) 475–
6677, or Christopher Powell, Senior
Financial Institution Policy Analyst,
(202) 452–3442, Division of Banking
Supervision and Regulation; Laurie
Schaffer, Associate General Counsel,
(202) 452–2272, Benjamin W.
McDonough, Assistant General Counsel,
(202) 452–2036, Steve Bowne, Counsel,
(202) 452–3900, Laura Bain, Senior
Attorney, (202) 736–5546, or Jeffery
Zhang, Attorney, (202) 736–1968, Legal
Division, Board of Governors of the
Federal Reserve System, 20th and C
Streets NW, Washington, DC 20551. For
the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), (202) 263–4869, Board of
Governors of the Federal Reserve
System, 20th Street and Constitution
Avenue NW, Washington, DC 20551.
FDIC: Bobby R. Bean, Associate
Director, (202) 898–6705, Michael E.
Spencer, Chief, (202) 898–7041, Eric W.
Schatten, Senior Policy Analyst, (202)
898–7063, Andrew D. Carayiannis,
Senior Policy Analyst, (202) 898–6692,
CapitalMarkets@FDIC.gov, Capital
Markets Branch, Division of Risk
Management Supervision; Suzanne J.
Dawley, Counsel, (202) 898–6509,
Gregory S. Feder, Counsel, (202) 898–
8724, or Andrew B. Williams, II,
Counsel, (202) 898–3591, Supervision
and Corporate Operations Branch, Legal
Division, Federal Deposit Insurance
Corporation, 550 17th Street NW,
Washington, DC 20429. For the hearing
impaired only, Telecommunication
Device for the Deaf (TDD), (800) 925–
4618.
SUPPLEMENTARY INFORMATION:
I. Background
The Office of the Comptroller of the
Currency (OCC), the Board of Governors
of the Federal Reserve System (Board),
and the Federal Deposit Insurance
Corporation (FDIC) (collectively, the
agencies) adopted the liquidity coverage
ratio (LCR) rule 1 in 2014. The LCR rule
established a quantitative liquidity
requirement that is designed to promote
the short-term resilience of the liquidity
risk profile of large and internationally
active banking organizations. The intent
of the agencies in issuing the LCR rule
was to improve the U.S. banking sector’s
ability to absorb shocks arising from
financial and economic stress and the
measurement and management of
liquidity risk.2 The LCR rule generally
applies to a bank holding company,
savings and loan holding company, or
depository institution if: (1) It has total
consolidated assets equal to $250 billion
or more; (2) it has total consolidated on-
balance sheet foreign exposure equal to
$10 billion or more; or (3) it is a
depository institution with total
consolidated assets equal to $10 billion
or more and is a consolidated subsidiary
of a firm that is subject to the LCR rule
(each, a covered company).3 Covered
companies generally must maintain an
amount of high-quality liquid assets
(HQLA) equal to or greater than their
projected total net cash outflows over a
prospective 30 calendar-day period. The
LCR rule defines three categories of
HQLA—level 1, level 2A, and level 2B
liquid assets—and sets forth qualifying
criteria for HQLA and limitations for an
asset’s inclusion in a banking
organization’s HQLA amount.
In 2016, the Board amended its LCR
rule to include certain U.S. municipal
securities as HQLA, subject to certain
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25976 Federal Register / Vol. 84, No. 108 / Wednesday, June 5, 2019 / Rules and Regulations
4 81 FR 21223 (Apr. 11, 2016).
5 The 2016 Amendments defined a general
obligation as a bond or similar obligation that is
backed by the full faith and credit of a public sector
entity. 12 CFR 249.20(c)(2).
6 Public Law 115–174, 132 Stat. 1296–1368
(2018).
7 12 U.S.C. 1828(aa).
8 83 FR 44451 (Aug. 31, 2018).
9 The OCC’s definition of ‘‘investment grade’’
under 12 CFR 1.2 provides that ‘‘[i]nvestment grade
means the issuer of a security has an adequate
capacity to meet financial commitments under the
security for the projected life of the asset or
exposure. An issuer has an adequate capacity to
meet financial commitments if the risk of default by
the obligor is low and the full and timely repayment
of principal and interest is expected.’’ 12 CFR 1.2.
10 12 CFR 50.20 (OCC); 12 CFR 249.20 (Board); 12
CFR 329.20 (FDIC).
11 Under the Board’s rule, a liquid and readily-
marketable security is a security that is traded in
an active secondary market with: (1) More than two
committed market makers; (2) a large number of
non-market maker participants on both the buying
and selling sides of transactions; (3) timely and
observable market prices; and (4) a high trading
volume. 12 CFR 249.3.
12 For example, the 2016 Amendments limited
the inclusion of municipal obligations in a Board-
supervised institution’s HQLA amount to 5 percent
of the institution’s total HQLA amount and limited
the inclusion as eligible HQLA of municipal
obligations of any single issuer to two times the
average daily trading volume of all general
obligation securities of the issuer over the previous
four quarters.
13 See 12 CFR 50.21 (OCC), 12 CFR 249.21
(Board), and 12 CFR 329.21 (FDIC).
14 As part of the interim final rule, the Board
rescinded the 2016 Amendments.
limitations (2016 Amendments).4 The
2016 Amendments permitted U.S.
municipal securities to qualify as level
2B liquid assets if they were: (1) General
obligation securities of public sector
entities (that is, a state, local authority,
or other governmental subdivision
below the U.S. sovereign entity level); 5
(2) investment grade under 12 CFR part
1 as of the calculation date; (3) issued
or guaranteed by a public sector entity
whose obligations have a proven record
as a reliable source of liquidity in
repurchase or sales markets during
stressed market conditions; and (4) not
be an obligation of a financial sector
entity or a financial sector entity’s
consolidated subsidiary (unless only
guaranteed by a financial sector entity
or its consolidated subsidiary and
otherwise eligible). The 2016
Amendments limited the inclusion of
general obligation securities in the
HQLA amount to 5 percent of the
covered company’s total HQLA amount.
The 2016 Amendments also limited the
inclusion of general obligation securities
of any single public sector entity to two
times the average daily trading volume
during the previous four quarters of all
general obligation securities issued by
that public sector entity.
The Economic Growth, Regulatory
Relief, and Consumer Protection Act
(EGRRCPA) was enacted on May 24,
2018.6 Section 403 of the EGRRCPA
amended section 18 of the Federal
Deposit Insurance Act 7 and requires the
agencies—for purposes of the LCR rule
and any other regulation that
incorporates a definition of the term
‘‘high-quality liquid asset’’ or another
substantially similar term—to treat a
municipal obligation as HQLA that is a
level 2B liquid asset if that obligation is,
as of the calculation date, liquid and
readily-marketable and investment
grade. Section 403 defines ‘‘municipal
obligation’’ as an obligation of a State or
any political subdivision thereof; or any
agency or instrumentality of a State or
any political subdivision thereof.
Section 403 defines ‘‘liquid and readily-
marketable’’ as having the meaning
given the term in 12 CFR 249.3 or any
successor thereto. Section 403 defines
‘‘investment grade’’ as having the
meaning given the term in 12 CFR 1.2
or any successor thereto.
II. Interim Final Rule
On August 31, 2018, the agencies
published an interim final rule
amending the agencies’ LCR rule to
implement section 403 of the EGRRCPA
and soliciting public comment.8
The interim final rule added a
definition to the agencies’ rule for the
term ‘‘municipal obligations,’’ which,
consistent with the EGRRCPA, means an
obligation of (1) a state or any political
subdivision thereof or (2) any agency or
instrumentality of a state or any
political subdivision thereof. In
addition, the interim final rule amended
the HQLA criteria with respect to level
2B liquid assets by adding municipal
obligations that, as of the LCR
calculation date, are both liquid and
readily-marketable and investment
grade (under 12 CFR part 1) 9 to the list
of assets that are eligible for treatment
as level 2B liquid assets.10
Consistent with section 403 of the
EGRRCPA, the interim final rule also
amended the definition of ‘‘liquid and
readily-marketable’’ in the FDIC’s and
OCC’s rules so that the term has the
same meaning given to it under 12 CFR
249.3 of the Board’s rule.11
The interim final rule also rescinded
the Board’s 2016 Amendments so that
municipal obligations under the Board’s
rule are treated consistently with
section 403 of the EGRRCPA.
III. Comments Received
The agencies received nine comment
letters addressing the interim final rule,
including letters from trade
associations, private sector enterprises,
and one individual. Commenters
generally expressed support for the
inclusion of certain municipal
obligations as HQLA and the agencies’
implementation of section 403 of the
EGRRCPA through the interim final
rule. Many commenters asserted that
municipal obligations were a suitable
asset class for HQLA eligibility, with
qualities consistent with other level 2B
liquid assets, and that the interim final
rule effectively satisfied the underlying
intent of section 403 of the EGRRCPA.
Some commenters suggested additional
changes to the LCR rule for the agencies’
consideration, including changes that
were not addressed or affected by
section 403 of the EGRRCPA.
Comments Regarding Eligibility and
Treatment of Municipal Obligations as
HQLA
Some commenters requested that the
agencies treat municipal obligations in
the same manner as other asset types
includable as HQLA, without imposing
additional limitations, such as those in
the Board’s 2016 Amendments.12
Other commenters argued that
municipal obligations should not be
subject to certain requirements and
limitations applicable to HQLA, such as
the haircuts and composition limits
generally applicable to level 2B liquid
assets.13 Alternatively, commenters
argued that these requirements should
be liberalized with respect to municipal
obligations. Another commenter
recommended that the definition of
liquid and readily-marketable should be
revised, because it would exclude from
HQLA certain municipal obligation
securities with a liquidity risk profile
similar to other assets that currently
qualify as level 2B liquid assets.
Section 403 requires the agencies to
treat a municipal obligation as a level
2B liquid asset if the obligation, as of
the calculation date, is liquid and
readily-marketable and investment
grade. The interim final rule
implemented section 403, imposing
only those restrictions on municipal
obligations that also apply to other level
2B liquid assets.14 In addition, the
interim final rule defined ‘‘liquid and
readily-marketable’’ as having the
meaning given the term in 12 CFR
249.3, as specifically mandated by
section 403. Accordingly, the agencies
believe that it would not be appropriate
to make changes to the restrictions
applicable to municipal obligations as
level 2B liquid assets or the definition
of ‘‘liquid and readily-marketable’’ in
this final rule.
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4 81 FR 21223 (Apr. 11, 2016).
5 The 2016 Amendments defined a general
obligation as a bond or similar obligation that is
backed by the full faith and credit of a public sector
entity. 12 CFR 249.20(c)(2).
6 Public Law 115–174, 132 Stat. 1296–1368
(2018).
7 12 U.S.C. 1828(aa).
8 83 FR 44451 (Aug. 31, 2018).
9 The OCC’s definition of ‘‘investment grade’’
under 12 CFR 1.2 provides that ‘‘[i]nvestment grade
means the issuer of a security has an adequate
capacity to meet financial commitments under the
security for the projected life of the asset or
exposure. An issuer has an adequate capacity to
meet financial commitments if the risk of default by
the obligor is low and the full and timely repayment
of principal and interest is expected.’’ 12 CFR 1.2.
10 12 CFR 50.20 (OCC); 12 CFR 249.20 (Board); 12
CFR 329.20 (FDIC).
11 Under the Board’s rule, a liquid and readily-
marketable security is a security that is traded in
an active secondary market with: (1) More than two
committed market makers; (2) a large number of
non-market maker participants on both the buying
and selling sides of transactions; (3) timely and
observable market prices; and (4) a high trading
volume. 12 CFR 249.3.
12 For example, the 2016 Amendments limited
the inclusion of municipal obligations in a Board-
supervised institution’s HQLA amount to 5 percent
of the institution’s total HQLA amount and limited
the inclusion as eligible HQLA of municipal
obligations of any single issuer to two times the
average daily trading volume of all general
obligation securities of the issuer over the previous
four quarters.
13 See 12 CFR 50.21 (OCC), 12 CFR 249.21
(Board), and 12 CFR 329.21 (FDIC).
14 As part of the interim final rule, the Board
rescinded the 2016 Amendments.
limitations (2016 Amendments).4 The
2016 Amendments permitted U.S.
municipal securities to qualify as level
2B liquid assets if they were: (1) General
obligation securities of public sector
entities (that is, a state, local authority,
or other governmental subdivision
below the U.S. sovereign entity level); 5
(2) investment grade under 12 CFR part
1 as of the calculation date; (3) issued
or guaranteed by a public sector entity
whose obligations have a proven record
as a reliable source of liquidity in
repurchase or sales markets during
stressed market conditions; and (4) not
be an obligation of a financial sector
entity or a financial sector entity’s
consolidated subsidiary (unless only
guaranteed by a financial sector entity
or its consolidated subsidiary and
otherwise eligible). The 2016
Amendments limited the inclusion of
general obligation securities in the
HQLA amount to 5 percent of the
covered company’s total HQLA amount.
The 2016 Amendments also limited the
inclusion of general obligation securities
of any single public sector entity to two
times the average daily trading volume
during the previous four quarters of all
general obligation securities issued by
that public sector entity.
The Economic Growth, Regulatory
Relief, and Consumer Protection Act
(EGRRCPA) was enacted on May 24,
2018.6 Section 403 of the EGRRCPA
amended section 18 of the Federal
Deposit Insurance Act 7 and requires the
agencies—for purposes of the LCR rule
and any other regulation that
incorporates a definition of the term
‘‘high-quality liquid asset’’ or another
substantially similar term—to treat a
municipal obligation as HQLA that is a
level 2B liquid asset if that obligation is,
as of the calculation date, liquid and
readily-marketable and investment
grade. Section 403 defines ‘‘municipal
obligation’’ as an obligation of a State or
any political subdivision thereof; or any
agency or instrumentality of a State or
any political subdivision thereof.
Section 403 defines ‘‘liquid and readily-
marketable’’ as having the meaning
given the term in 12 CFR 249.3 or any
successor thereto. Section 403 defines
‘‘investment grade’’ as having the
meaning given the term in 12 CFR 1.2
or any successor thereto.
II. Interim Final Rule
On August 31, 2018, the agencies
published an interim final rule
amending the agencies’ LCR rule to
implement section 403 of the EGRRCPA
and soliciting public comment.8
The interim final rule added a
definition to the agencies’ rule for the
term ‘‘municipal obligations,’’ which,
consistent with the EGRRCPA, means an
obligation of (1) a state or any political
subdivision thereof or (2) any agency or
instrumentality of a state or any
political subdivision thereof. In
addition, the interim final rule amended
the HQLA criteria with respect to level
2B liquid assets by adding municipal
obligations that, as of the LCR
calculation date, are both liquid and
readily-marketable and investment
grade (under 12 CFR part 1) 9 to the list
of assets that are eligible for treatment
as level 2B liquid assets.10
Consistent with section 403 of the
EGRRCPA, the interim final rule also
amended the definition of ‘‘liquid and
readily-marketable’’ in the FDIC’s and
OCC’s rules so that the term has the
same meaning given to it under 12 CFR
249.3 of the Board’s rule.11
The interim final rule also rescinded
the Board’s 2016 Amendments so that
municipal obligations under the Board’s
rule are treated consistently with
section 403 of the EGRRCPA.
III. Comments Received
The agencies received nine comment
letters addressing the interim final rule,
including letters from trade
associations, private sector enterprises,
and one individual. Commenters
generally expressed support for the
inclusion of certain municipal
obligations as HQLA and the agencies’
implementation of section 403 of the
EGRRCPA through the interim final
rule. Many commenters asserted that
municipal obligations were a suitable
asset class for HQLA eligibility, with
qualities consistent with other level 2B
liquid assets, and that the interim final
rule effectively satisfied the underlying
intent of section 403 of the EGRRCPA.
Some commenters suggested additional
changes to the LCR rule for the agencies’
consideration, including changes that
were not addressed or affected by
section 403 of the EGRRCPA.
Comments Regarding Eligibility and
Treatment of Municipal Obligations as
HQLA
Some commenters requested that the
agencies treat municipal obligations in
the same manner as other asset types
includable as HQLA, without imposing
additional limitations, such as those in
the Board’s 2016 Amendments.12
Other commenters argued that
municipal obligations should not be
subject to certain requirements and
limitations applicable to HQLA, such as
the haircuts and composition limits
generally applicable to level 2B liquid
assets.13 Alternatively, commenters
argued that these requirements should
be liberalized with respect to municipal
obligations. Another commenter
recommended that the definition of
liquid and readily-marketable should be
revised, because it would exclude from
HQLA certain municipal obligation
securities with a liquidity risk profile
similar to other assets that currently
qualify as level 2B liquid assets.
Section 403 requires the agencies to
treat a municipal obligation as a level
2B liquid asset if the obligation, as of
the calculation date, is liquid and
readily-marketable and investment
grade. The interim final rule
implemented section 403, imposing
only those restrictions on municipal
obligations that also apply to other level
2B liquid assets.14 In addition, the
interim final rule defined ‘‘liquid and
readily-marketable’’ as having the
meaning given the term in 12 CFR
249.3, as specifically mandated by
section 403. Accordingly, the agencies
believe that it would not be appropriate
to make changes to the restrictions
applicable to municipal obligations as
level 2B liquid assets or the definition
of ‘‘liquid and readily-marketable’’ in
this final rule.
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